Hotel Industry Prepares For War

NEW YORK— Most major lodging companies have contingency plans in place to deal with slowed travel demand due to the war with Iraq. And with the U.S. commencing military action, we are beginning to see them implemented on an as-needed basis. Many hotel companies said they are prepared to cut services such as closing restaurants and limiting hours of health clubs to cut costs. If demand really slows due to Americans’ fear of travel, hotels said they would even consider cutting staff hours, and closing unused portions of their hotel properties. Hoteliers said business travel has slackened already in the last few weeks, with revenue per available room (RevPAR) down 5% from a year earlier in the week to March 15, according to Smith Travel Research. A report released by PricewaterhouseCoopers on Thursday noted that while not discouraging work-related travel, many corporate executives are advising employees to be particularly cautious regarding travel to certain destinations. “Domestic travel and lodging demand will certainly be affected by the war and the related security warnings,” stated the report. As such, PricewaterhouseCoopers estimates that RevPAR will decrease in the first half of 2003 and return to the baseline growth path in the second half of the year. The report stated there are two factors expected to cause a rebound in travel in the second half of the year under the “brief war” scenario. First, postponed leisure travel will recover just as the peak summer travel season begins. Summer travel under this scenario will surpass 1999 levels but will still remain 1.2% below the record level experienced in 2000. Second, the removal of geopolitical uncertainty will lead to a rebound in business travel as economic activity accelerates. Under the updated brief war scenario, RevPAR will increase by 0.5% in 2003, compared to 2.1% under the baseline status quo scenario. During the 30 to 45 days of military action in a “brief war” lodging demand will decrease by an additional 4.9% or 126 thousand occupied rooms per night compared to the baseline status quo, to a seasonally adjusted level of 2.409 million daily room nights. Between the demand trough expected during the peak of military action and the fourth quarter of 2003 (when lodging demand under the brief war scenario is expected to return to the level of the status quo scenario), lodging demand will recover by 7.7% or 188 thousand occupied rooms per night, said PricewaterhouseCoopers. However, lodging analysts said there are a few positive elements to this scenario that may help mitigate near-term stress— limited new room supply and better capitalized companies. Data shows that room supply should grow only 1.5% in 2003, compared to 1.8% growth in 2002, allowing many hotel companies to benefit from increased demand when the economy rebounds. The limited bright spots to this scenario are in drive-related markets, which fared much better than big-city hotels after the Sept. 11 attacks. Disneyland, which mostly serves close-by Southern Californians, is ahead of last year in bookings while Disney World, which mostly serves tourists from outside its Florida base, is behind 2002, according to recent reports. Taking a proactive step in dealing with fearful travelers, Six Continents Hotels today announced it is eliminating all cancellation penalties and change fees at its company managed and owned hotels in the U.S., Canada, and Mexico for customers who cancel or change a hotel stay on or before midnight on March 26, 2003. Additionally, the company is strongly encouraging all hotels within the system to adopt the same policy during this time of conflict. This policy covers reservations for stays with an arrival date no later than April 3, 2003. Six Continents Hotels will continue to monitor the situation and adjust its policy as necessary. Guests must call the hotel directly in order to not be penalized for the cancellation or change of travel date, said Six Continents.